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A complete guide to VAT on business entertainment expenses
In the UK, businesses often struggle to understand how to handle VAT on business entertainment expenses. Although not all of the funds can be recovered, they are allocated for catering, client dinners, and staff meetings. Your claim for VAT on business entertainment expenses may be rejected or contested if you don't follow the rules, as VAT relief is only available for specific costs.
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The simplest way to stay on the safe side is to understand HMRC’s guidance and keep well-organised records.
VAT on business entertainment expenses & corporate hospitality
- Corporate hospitality covers food, drinks, tickets, and events offered to clients, suppliers, or prospects. Examples include a round of golf, a networking dinner, or inviting clients to a conference with catering. See more on our latest post VAT on food & catering.
- Here’s the key point: Generally speaking, VAT cannot be recovered for entertainment expenses related to clients. That means your company absorbs the cost of the meal or the drinks, not offset against your VAT bill.
- The only way to avoid confusion is to record exactly what was spent, why, and who attended the event. If HMRC requests it, you’ll need to provide invoices and receipts that clearly list the VAT
VAT on staff entertainment
- The regulations change when it comes to employees. Annual parties, training sessions, and staff socials are examples of events that may be eligible for VAT recovery, provided they genuinely benefit all employees. For instance, an all-inclusive Christmas party is typically a good option. However, benefits for directors alone or for a small group are not.
- The safest practice is to note the purpose of each event, attach receipts, and document the names of attendees. This level of detail demonstrates to HMRC that the expense was for business purposes and not personal benefit.
VAT on business entertainment & client meals
- Buying lunch for a client to maintain goodwill is treated as entertainment, not a business necessity. That means VAT on such costs cannot usually be reclaimed. A common mistake is to lump these expenses into staff costs. Separating staff entertainment from client entertainment avoids rejected claims later.
- Example: if you host a lunch for two staff members and a client, you may reclaim VAT only on the staff portion. The client’s share of the bill is excluded. Splitting the invoice properly ensures accuracy.
Recoverable event expenses for business entertainment VAT
- Some event-related costs can be claimed. Venue hire for a training workshop, catering provided during an internal meeting, or printed training materials are all legitimate business expenses.
- The golden rule is this: if the expense is directly linked to the running of the business, you’re more likely to reclaim the VAT. Always keep receipts that itemise VAT and include details such as the date, purpose, and attendee list. Many businesses find it helpful to keep a simple spreadsheet to track this information for the year.
Common mistakes in VAT on business entertainment
- Discarding receipts.
- Combining business and personal spending.
- Claiming unrecoverable client hospitality.
- Failing to record event attendees.
Compliance is made much simpler with digital filing. Companies must comply with HMRC’s Making Tax Digital (MTD) initiative. You can track VAT, keep track of your expenses, and file returns without using plenty of paper thanks to software like Swift VAT Pro. Utilising a reputable platform keeps your records audit-ready and minimises human error.
Practical record-keeping tips for VAT on business entertainment
- Save every invoice for entertainment and catering.
- Take note of the attendees and the reason for the expense.
- Clearly distinguish between client and staff expenses.
- Verify that each invoice includes VAT.
Staying compliant with HMRC
Final thoughts
- Businesses may struggle to manage entertainment costs and VAT on business-related entertainment expenses. Keeping accurate records, separating staff events and client hospitality, and filing your VAT return for business entertainment expenses online are the best ways to prevent headaches. Having thorough documentation and utilising VAT accounting software makes things run more smoothly.
- It also gives you peace of mind that you’re protected if HMRC decides to investigate further. If you have questions about VAT returns, please contact us for guidance.
Frequently Asked Questions:
Your Questions – Answered ,We’re here to help you with anything VAT-related.
1. What is VAT on business entertainment expenses?
VAT on business entertainment expenses is the Tax applied to costs incurred for staff or client hospitality, such as meals, events, or tickets. Not all entertainment costs qualify for VAT recovery. HMRC distinguishes between staff events, which may allow partial VAT reclaim, and client entertainment, where VAT is usually not recoverable.
For example, catering for a staff training session may qualify, while lunch for clients generally does not. Accurate record-keeping of invoices, attendees, and the purpose of the expense is essential. Understanding which costs can be reclaimed prevents errors, ensures correct VAT returns, and reduces the risk of HMRC penalties or repayment requests.
2. Can VAT be reclaimed on staff parties and training events?
Yes, VAT may be reclaimed on staff events if the event benefits all employees and is not limited to directors or a small group. Eligible examples include Christmas parties, team-building activities, and training sessions held on company premises. Expenses must be directly related to the business.
Companies should maintain detailed invoices, receipts, and attendee lists that clearly indicate the purpose of the event. Non-qualifying perks or personal gifts cannot be reclaimed for VAT. Accurate categorisation of eligible expenses ensures compliance, avoids errors in VAT returns, and provides evidence if HMRC requests verification.
3. Is VAT recoverable on client meals and entertainment?
VAT on client meals or entertainment is generally not recoverable. HMRC treats these as business hospitality rather than essential business costs. Examples include lunches, dinners, or event tickets provided to clients to maintain relationships or goodwill.
If staff and clients attend the same event, VAT may only be reclaimed on the portion attributable to the staff. Clear separation of client and staff expenses on invoices is crucial. Maintaining detailed records of the purpose, attendees, and VAT charged ensures accurate VAT returns and reduces the risk of disputes with HMRC.
4. Which business event costs are eligible for VAT recovery?
Some business event costs are reclaimable if they are directly linked to business operations. Examples include venue hire for internal meetings or training, catering for staff events, and materials used for workshops. Only costs incurred solely for business purposes qualify.
Detailed invoices should clearly show the VAT charged, the purpose, dates, and attendees. Maintaining accurate records and tracking eligible expenses prevents errors, ensures smoother VAT returns, and provides evidence in case HMRC requests clarification.
5. How can businesses stay compliant when claiming VAT on entertainment expenses?
Compliance requires a clear system for recording, categorising, and documenting VAT on business entertainment expenses. Businesses should keep invoices, note the purpose of each expense, and separate staff events from client hospitality. Only expenses directly related to business activities are eligible for repayment.
Regularly reviewing claims and maintaining detailed documentation helps protect against HMRC audits or penalties. Avoid common mistakes such as mixing personal and business expenses, losing receipts, or claiming non-qualifying entertainment. Following HMRC guidance ensures accurate VAT recovery and reduces administrative issues.
